§ 37-61-421, MCA.
[*P43] In its May 7, 2001, Order, the District Court found that the Defendants
did not unreasonably or vexatiously multiply the proceedings. After reviewing
the record, we conclude that the District Court's finding was not clearly
erroneous. Consequently, we affirm the District Court's order denying
the motion for attorney fees and costs.
[*P44] This case is remanded to the District Court for further proceedings
consistent with this opinion.
TERRY N. TRIEWEILER
JAMES C. NELSON
W. WILLIAM LEAPHART
CONCURBY: W. William Leaphart; James
Justice W. William Leaphart specially concurring.
[*P45] I concur in the decision of the Court. I write separately to point
out an additional fact that I find significant in determining whether
or not the waivers inherent in the arbitration agreement were within Alice
Kloss's reasonable expectations.
[*P46] The Court notes that the 1998 Agreement contained a pre-dispute arbitration
clause which was not signed by Kloss. Rather, Kloss signed a detachable
signature card that acknowledged she received a copy of the 1998 Agreement
and incorporated the Agreement's arbitration clause by reference. I would
also add that the record indicates that the detachable signature card
was signed by Kloss before she was ever provided a copy of the Agreement.
The branch office administrator, Donna Ferderer, testified that she filled
out the Jones account number, wrote Kloss's social security number on
the form, wrote the type of [**137] registration of the account, and
tore the detachable card out of the brochure. Ferderer testified that,
"I gave it to Alice and told Alice I need her signature right here.
And for her to please indicate her capacity." Ferderer then took
the form back, gave Kloss the disclosure statement, advised her that "these
are the terms and conditions of opening up an Edward D. Jones account,
keep these for your records. We retain this copy for our home office."
[*P47] Although the detachable signature card states that the Agreement "contains
a pre-dispute arbitration clause," it does not advise Kloss that
in submitting to arbitration she waives her right to access to the courts,
her right to jury trial, her right to reasonable discovery, her right
to findings of fact based on the evidence and her right to enforce the
law applicable to her case by way of appeal. [***11] Unless, in advance
of executing the signature card, Kloss was advised of the fact that an
agreement to arbitrate effectively waived the above rights, it cannot
be said that such waivers were within her reasonable expectations when
she signed. Reasonable expectations are, by their very nature, prospective;
they are defined before one enters into a contract, not after.
Thus the terms and conditions governing the account should have been provided
to or explained to Kloss before having her execute the signature card.
Recognizing the routine practice between the parties, the Court notes
that Kloss did not read the contract. However, even if she had read the
Agreement, it would not have made any difference since it was not handed
to her until after she signed the detachable card.
W. WILLIAM LEAPHART
Justice Jim Rice joins in the concurring opinion of Justice Leaphart.
Justice James C. Nelson specially concurs .
[*P48] I concur in our Opinion. However, as mentioned briefly at 21, 27 and
36 of our Opinion and at 47 of Justice Leaphart's concurrence, there is
an additional rationale supporting our decision in this case--i.e., whether
Kloss effectively waived her rights to a trial by jury and to access to
the courts n1 by executing Jones's 1992 and 1998 [**138] standard-form
contracts. As far as I can determine, this is an issue of first impression
in Montana. n2 It is my intention to develop this rationale further.
n1 I have limited my analysis and discussion to these two constitutional rights
because these are the two raised in this case. In saying that, I recognize,
however, that other constitutional rights may be implicated in these sorts
of cases, including the right to due process of law (Article II, Section
17, Montana Constitution) and equal protection of the laws (Article II,
Section 4, Montana Constitution). Moreover, as our Opinion points out,
arbitration results in the loss of certain procedural rights such as the
right to engage in discovery and the right to have the admissibility of
evidence judged under the Montana Rules of Evidence. Additionally, the
right to judicial review of arbitration decisions is severely restricted--i.e.
effectively there is no right of appeal from these decisions.
n2 Jones relies on Passage v. Prudential-Bache Sec., Inc. (1986), 223 Mont.
60, 727 P.2d 1298; Larsen v. Opie (1989), 237 Mont. 108, 771 P.2d
977; Kingston v. Ameritrade, Inc., 2000 MT 269, 302 Mont. 90, 12
P.3d 929; and Southland v. Keating (1984), 465 U.S. 1, 104 S. Ct.
852, 79 L. Ed. 2d 1, in opposing Kloss's waiver argument. As to this
Court's opinions, while we upheld the arbitration agreements at issue
in those cases on various grounds, we did not address the argument raised
here--i.e. whether the rights to trial by jury and access to the courts
under Article II, Section 26 and Article II, Section 16 may be forfeited
by contractual waiver that is other than voluntary, knowing and intelligent.
Similarly, the Supreme Court did not address the waiver of the Seventh
Amendment right to jury trial in Southland. In fact, the U.S. Supreme
Court has not addressed this argument in the contexst of any arbitration
[*P49] Certainly, any person has the right to enter into an agreement which
includes an arbitration clause. Where the contract and the arbitration
clause has been negotiated at arm's- length between parties of equivalent
sophistication and bargaining power, then there is no reason why such
parties cannot also agree to settle disputes arising under the agreement,
outside the judicial process. If these sorts of parties determine that
it serves their mutual interests to waive their Montana constitutional
rights of jury trial and access to the courts, then they have the right
to do so.
[*P50] The contrary is also true. Where parties are not of equivalent sophistication
and bargaining power and where the agreement and the arbitration clause
have not been negotiated for at arm's-length, then it is appropriate--indeed,
imperative--that courts closely scrutinize any process and any contract
which results in one party forfeiting basic constitutional guarantees
to the advantage of the other party. That brings me to the case at bar.
[*P51] As stated in our Opinion, the parties here were not of equivalent sophistication
and bargaining power. The defendant, Jones, is one of this country's large
financial corporations; Kloss is an elderly widow. Jones is in the business
of selling securities and investment advice and services nation-wide;
Kloss is an ordinary citizen with no apparent special expertise in the
stock market. Kloss did not negotiate at arm's-length for the contracts
at issue. Rather, she was [***12] presented with typical, standard-form,
take-it-or-leave-it contracts of adhesion that, among other boiler-plate
provisions, included arbitration clauses. Kloss did not read the agreements
but relied upon Jones's agent, Husted, to explain the significant terms
of the agreements to her, as he had in [**139] past dealings. Furthermore,
as Justice Leaphart points out (and setting aside the question of whether
Kloss would have understood the significance of what she was agreeing
to) even if she had desired to read the contracts before signing, Jones's
execution procedures insured that she would not have that opportunity.
[*P52] With that background, I next turn to Article II of Montana's Constitution.
The rights included within this "Declaration of Rights" are
" fundamental rights." Butte Community Union v. Lewis (1986),
219 Mont. 426, 430, 712 P.2d 1309, 1311. Accord, Wadsworth
v. State (1996), 275 Mont. 287, 299, 911 P.2d 1165, 1172; State
v. Tapson, 2001 MT 292, P15, 307 Mont. 428, P15, 41 P.3d 305, P15.
That means that these rights are significant components of liberty, see
Black's Law Dictionary, 7th Edition, p. 683, any infringement of which
will trigger the highest level of scrutiny, and, thus, the highest level
of protection by the courts. Wadsworth, 275 Mont. at 302, 911 P.2d
at 1174 (citing Gulbrandson v. Carey (1995), 272 Mont.
494, 502, 901 P.2d 573, 579 ("The most stringent standard, strict
scrutiny, is imposed when the action complained of interferes with the
exercise of a fundamental right . . .")). Two specific fundamental
rights are implicated here. The first involves the right to trial by jury.
[*P53] Article II, Section 26 of Montana's Constitution guarantees that "the
right of trial by jury is secured to all and shall remain inviolate."
That this constitutionally guaranteed right of a jury trial is "
fundamental" and, therefore, deserving of the highest level of court
scrutiny and protection is beyond argument. See, e.g., State
v. LaMere, 2000 MT 45, 298 Mont. 358, 2 P.3d 204 (requiring procedural
exactitude for impaneling jury); Woirhaye v. Montana Fourth Judicial
Dist. Court, 1998 MT 320, 292 Mont. 185, 972 P.2d 800 (striking statute
that limited right to sequential jury trials as unconstitutional); State
v. Dahlin, 1998 MT 113, 289 Mont. 182, 961 P.2d 1247 (requiring waiver
of right to jury trial be evinced by written consent of both parties filed
with the court in criminal proceedings); Hammer v. Justice Court of
Lewis and Clark County (1986), 222 Mont. 35, 720 P.2d 281 (abolishing
prepayment of fees for civil jury trial as obstructive).
[*P54] As we observed in LaMere, the importance of the right of trial
by jury derives from it having " developed in harmony with our basic
concepts of a democratic society and a representative government."
LaMere, 28 (citation omitted). "Since the time of the Magna Carta,
'trial by jury has been prized as a shield against oppression . . . [and]
the approaches of arbitrary power.'" LaMere, 28 (citation
omitted). This [**140] entitlement has been "long thought to be
a safeguard against tyranny." LaMere, 28. The right to trial
by jury is a "jealously protected safeguard against government oppression."
LaMere, 29. And, "the guarantees of jury trial in the Federal
and State Constitutions reflect a profound judgment about the way in which
the law should be enforced and justice administered." LaMere,
29 (citation omitted). Or, as Justice William Blackstone stated over two
[This right] is a privilege of the highest and most beneficial nature and our
most important guardian both of public and private liberty. Our liberties
cannot but subsist so long as this palladium remains sacred and inviolate,
not only from all open attacks, but also from all secret machinations
which may sap and undermine it.
Commentaries on the Laws of England (1765), reprinted in Volume
2of In Defense of Trial by Jury at ii (J. Kendall Few, American
Jury Trial Foundation, 1993).
[*P55] Given the sacredness and inviolability of the fundamental right to
trial by jury, any contract provision that openly or subtly causes the
forfeiture of the exercise of this right must be rigorously examined by
the courts. This is all the more necessary when such a contract provision
is included in a standard-form contract of adhesion foisted upon unsophisticated
and unsuspecting ordinary [***13] citizens and small business people
as part of the intercourse of daily life. Indeed, the use of such contractual
provisions is at one and the same time an "open attack" on the
right of jury trial and a "secret machination" causing forfeiture
of that right that Blackstone predicted would "sap and undermine"
the right, and with that our "public and private liberties.
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